Enforcement Proceedings Specific to Negotiable Instruments — Cheques, Promissory Notes and Bills

How are claims collected on a cheque, promissory note or bill of exchange in enforcement proceedings specific to negotiable instruments? Learn about the payment order, the 5-day objection period, and the complaint and objection procedures under İİK Arts. 167-176.

Negotiable instruments are among the most widely used payment and credit instruments in commercial life. Divided into three basic types — the cheque, the promissory note and the bill of exchange — they offer the creditor a faster and more effective means of collection than general enforcement proceedings. The Enforcement and Bankruptcy Law No. 2004 (İİK) governs the attachment procedure specific to negotiable instruments in detail in Arts. 167-176. This article deals comprehensively with the concept of a negotiable instrument, the conditions for proceedings, the routes of objection and complaint against a payment order, the differences between cheques, promissory notes and bills, and the problems encountered in practice.

What Is a Negotiable Instrument and What Are Its Types?

A negotiable instrument is the general name for documents governed by the Turkish Commercial Code No. 6102 (TTK) that have the character of commercial paper and contain an unconditional promise or order to pay. Negotiable instruments comprise three basic types: the cheque, the promissory note and the bill of exchange.

Promissory note: a negotiable instrument containing the issuer's unconditional promise to pay a specified sum to the payee or to their order (TTK Art. 776). In a promissory note the issuer is the principal debtor. Alongside the mandatory statutory elements, TTK Art. 777 contains supplementary provisions for certain omissions such as the maturity date and the place of payment.

Cheque: a negotiable instrument issued by the drawer addressed to the drawee bank containing an order to pay a specified sum (TTK Art. 780). By statute a cheque is payable at sight, and any provision to the contrary is deemed unwritten. That said, under transitional Art. 3/5 of Law No. 5941, until 31 December 2028 presentation to the drawee bank for payment before the date of issue written on the cheque is invalid. This transitional rule does not turn a cheque into a term instrument in the technical sense.

Bill of exchange: a negotiable instrument containing the drawer's order to the drawee to pay a specified sum on a specified date to the payee or to their order (TTK Art. 671). A bill involves a tripartite relationship between drawer, drawee and payee. Although used less frequently in practice than the other negotiable instruments, the bill is important in international trade.

Negotiable instruments have the character of commercial paper and may be transferred by endorsement on the statutory conditions. Although the liability of signatories may be joint and several, the principal debtor, the recourse debtor, the avalist and the drawee bank do not share the same legal status.

How Are Enforcement Proceedings Specific to Negotiable Instruments Commenced?

Enforcement by way of attachment specific to negotiable instruments begins, under İİK Art. 167, with the creditor producing the negotiable instrument in their possession to the enforcement office and applying for enforcement. The application is prepared in a manner similar to an application for general enforcement by attachment; but the proceedings must be based on a negotiable instrument.

The application contains the following particulars: the identity details and addresses of the creditor and the debtor; the amount of the claim (the sum stated in the instrument); the rate of interest and the date from which it runs; and the type, date of issue and maturity details of the instrument on which the proceedings are based. The creditor must attach the original instrument to the application; proceedings cannot be commenced on a photocopy or a certified copy.

On receiving the application the enforcement officer checks whether the instrument has the character of a negotiable instrument and whether it has matured (İİK Art. 168/1). If the officer determines that the instrument does not have that character, the application may be rejected. The officer's examination is, however, a formal one and involves no assessment of the substantive validity of the instrument.

If the enforcement officer is satisfied that the instrument has the character of a negotiable instrument, a payment order is sent to the debtor. The payment order in enforcement specific to negotiable instruments is governed by İİK Art. 168 and differs significantly from the payment order in general enforcement by attachment.

What Are the Content and Time Limits of the Payment Order?

The payment order warns the debtor to pay the debt and costs within ten days; to complain to the enforcement court within five days if the instrument is not a negotiable instrument or if the creditor has no right to enforce; and, where there is an objection to the signature or to the debt, likewise to apply to the enforcement court within five days. The period for the declaration of assets and its consequences are also stated. An objection to venue is likewise made under the procedure for objecting to the debt, within five days and identifying the competent enforcement office.

What Types of Objection Are There in Enforcement Specific to Negotiable Instruments and What Is the Procedure?

Objection to the debt, objection to the signature and a complaint under İİK Art. 170/a as to the character of the instrument or the right to enforce are distinct from one another. Objection to the debt and objection to the signature do not of themselves halt enforcement steps other than sale; the enforcement court may stay the proceedings temporarily on the conditions in İİK Art. 169/a or Art. 170.

In an objection to the debt, the debtor proves the absence, discharge or deferral of the debt by the official documents or documents whose signature is admitted, as accepted in İİK Art. 169/a; limitation and defences arising from the text of the instrument are assessed separately. Defences of set-off, want of consideration or the underlying relationship are not each automatically accepted under the same documentary regime.

On the acceptance or rejection of an objection to the signature, compensation and a fine depend on statutory conditions such as a request, the creditor's bad faith or gross fault, the debtor's denial of the signature and a temporary stay. A twenty per cent award of compensation is not made automatically in every decision.

How Does the Complaint Route Work?

A complaint that the instrument does not have the character of a negotiable instrument, or that the creditor has no right to enforce, must be made within five days of service of the payment order. The general complaint period under İİK Art. 16 against unlawful acts of the enforcement officer is seven days from becoming aware of them; failure to give effect to a right, or leaving a matter unreasonably in abeyance, and certain breaches of public policy may be subject to no time limit. Not all grounds of complaint carry the five-day period.

What Are the Differences Between Cheques, Promissory Notes and Bills of Exchange?

Although all three types of negotiable instrument have the character of commercial paper, there are important differences between them. Those differences directly affect the enforcement process.

For a dishonoured cheque, the offence and sanctions under Art. 5 of the Cheque Law arise only if statutory conditions such as timely presentation, the “insufficient funds” endorsement, a complaint and the status of the offender are met. The presentation periods for cheques also differ from those of other negotiable instruments: a cheque drawn and payable in the same country must be presented within 10 days if payable in the same place and within one month if payable elsewhere; a cheque payable in another country must be presented within one month if on the same continent and within three months if on different continents. Countries with a Mediterranean coastline are treated as being on the same continent for this purpose (TTK Art. 796).

In a promissory note the concept of maturity is to the fore. A promissory note is issued to be paid at a specified maturity. Enforcement proceedings on a promissory note cannot be commenced before maturity. The issuer of a promissory note is the principal debtor and is primarily liable for non-payment.

In a bill of exchange the drawee acquires the status of principal debtor by accepting. Where there is no acceptance, the drawer is liable as a recourse debtor on the statutory conditions; the drawer is not treated as principal debtor in the same sense as an acceptor. For recourse against the drawer and endorsers, the conditions as to presentation, protest or a declaration in lieu of protest, and notice, are examined on the particular instrument.

How Do Limitation Periods Operate for Negotiable Instruments?

A claim against the acceptor of a bill and against the issuer of a promissory note is subject to three years; the holder's recourse against endorsers and the drawer is one year from the date of a timely protest or, where there is a “no protest” clause, from maturity; recourse between endorsers and against the drawer is six months from the date of payment or of the action. For cheques, the holder's rights of recourse are subject to three years from the end of the presentation period, and recourse between cheque debtors to three years from the date of payment or of the claim being asserted in an action.

If a cheque is not presented in time, the rights of recourse under the law on negotiable instruments are affected; the document is not in every case treated as having become merely an “ordinary bond”. Claims on the underlying relationship and the unjust enrichment claim under TTK Art. 732 may be reserved on their own conditions.

Can a Negative Declaratory or Restitution Action Be Brought?

The debtor may bring a negative declaratory action under İİK Art. 72 before or after the proceedings. Before proceedings, the court may order by way of interim measure that no proceedings be commenced, against security of at least fifteen per cent of the claim. An action brought after proceedings have begun does not halt them; the court may order that money in the enforcement office not be paid to the creditor, against security covering the debtor's loss from delay. If the debt has been paid, a restitution action may be brought within one year of the date of payment.

Does Compensation for Denial Apply in Enforcement Specific to Negotiable Instruments?

The compensation consequences in negotiable instrument proceedings are not identical to “compensation for denial in enforcement” under İİK Art. 67 in general enforcement without a judgment. On decisions accepting or rejecting an objection to the debt or the signature, the conditions in İİK Arts. 169/a and 170 as to a request, bad faith, gross fault and a temporary stay apply. Although the statute sets the rate at not less than twenty per cent of the claim, it is not awarded automatically in every file.

What Problems Arise Most Often in Enforcement Specific to Negotiable Instruments and How Are They Solved?

A defect in the mandatory elements of an instrument may affect its character as a negotiable instrument; not every omission has the same consequence, however, and the supplementary provisions of the TTK are taken into account. Whether the chain of endorsements is formally regular, the holder's right to enforce and any break in the chain may be examined under İİK Art. 170/a. An objection to the signature must be raised expressly and within the five-day period.

An objection to venue is subject to the procedure for objecting to the debt, not to complaint; it must be made to the enforcement court within five days and must identify the competent enforcement office. The proper venue is determined by assessing together the general provisions and the place of payment, the place of issue and any valid venue clause in the instrument. Where there are multiple proceedings for the same claim, the legal route for an allegation of duplication is determined on the facts according to the parties, subject matter and basis of the proceedings; no single outcome of “annulment by complaint” applies in every case.

Enforcement Specific to Negotiable Instruments in the Light of Case Law

In practice the enforcement court assesses the original instrument and its mandatory elements, the holder's right to enforce, the chain of endorsements, the presentation and protest conditions, and objections raised in time, within the limited review regime of enforcement law. In an objection to the debt the documentary system in İİK Art. 169/a applies; in an objection to the signature, the examination and sanction conditions in Art. 170.

Where a cheque has not been presented in time, the rights of recourse under negotiable instrument law are affected; it cannot be said that the document automatically becomes a written admission of debt by the drawer. A claim based on the underlying relationship and an unjust enrichment claim under TTK Art. 732 may be advanced separately on their own conditions.

Frequently Asked Questions

Does an objection to the debt or the signature halt the proceedings?

It halts the sale; it does not of itself halt the other steps. The court may order a temporary stay.

What is the objection period?

Five days from service of the payment order.

When does limitation start for a cheque?

For the holder's recourse, three years from the end of the presentation period.

Does a negative declaratory action brought after proceedings halt them?

No; where the conditions are met, only an order that money held in the office not be paid out may be granted.